Italy's Largest Utility Agrees to $1.73 billion Sale Leaseback of Property Portfolio

Bloomberg.com: Germany - March 19, 2004

Enel SpA, Italy's biggest utility, agreed to sell most of its real estate holdings to a Deutsche Bank AG-led group for 1.4 billion euros ($1.73 billion) to reduce debt and focus on its electricity and gas businesses. Deutsche Bank, Europe's second-biggest bank by assets, and French money manager CDC Ixis will buy 887 properties, Rome-based Enel said in a faxed statement. Enel expects to record a pretax gain of 200 million euros from the sale.

Enel, Europe's fourth-biggest power producer, has a market value of 37.2 billion euros. Enel debt is rated A1 at Moody's Investors Service and A+ at Standard & Poor's Corp., the fifth-highest level. Both ratings companies have a negative outlook on their rankings. The difference between the yield on the notes and that of similarly dated government debt is 19 basis points, little changed from six months ago.

State-controlled Enel cut the amount of property offered for sale after rejecting a 1.7 billion-euro offer from Deutsche Bank and CDC for all of its real estate holdings, the Italian newspaper MF reported in January. Enel said today it transferred 335 properties valued at 380 million euros to another of its property units. Deutsche Bank and CDC have until April 30 to sign the purchase contract, Enel said. The two companies submitted the only bid for the property in November. Two other potential buyers couldn't agree on the terms under which Enel would rent some of the assets. Pirelli & C. Real Estate SpA, Italy's biggest property manager, has said it may buy some of the assets from Deutsche Bank and CDC for as much as 200 million euros.

CDC is a unit of Caisse des Depots et Consignations, France's biggest financial institution, and manages pension funds for government employees. Deutsche Bank is making the purchase through its DB Real Estate Management unit, Enel said.

Cost Savings

Enel plans to use the cash from the sale to reduce debt, which stood at 24.3 billion euros at the end of last year. The agreement will allow Enel to save 20 million euros a year by cutting debt and interest payments, and renting back some of the properties will reduce maintenance costs. Enel follows Italian companies such as Telecom Italia SpA, the nation's biggest telephone company, and Eni SpA, Europe's fourth-biggest oil producer, in selling property. Buyers have included Pirelli Real Estate and the property funds of Morgan Stanley and Goldman Sachs Group Inc.

Italian Trend

Italian companies have sold property valued at $13.1 billion in the past four years, according to Bloomberg data. Shares of Pirelli Real Estate have advanced 65 percent in the past year, and Beni Stabili SpA, Italy's second-biggest property manager, has climbed 53 percent. A Bloomberg index of 104 European property companies has jumped 61 percent in the period.

Enel and Deutsche Bank formed a property joint venture in 2000, when former Chief Executive Franco Tato was seeking to expand in such areas. Deutsche Bank bought Enel's share of the venture two years later. The Italian utility put its Enel Real Estate unit up for sale in 2002. At the time, the business had a book value of 2.6 billion euros, included a car-rental subsidiary and employed 1,128 people. It had 3 million square meters of industrial real estate and 1.1 million square meters of residential properties.

Citigroup Inc. and Lazard LLC advised Enel on the sale.

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